Corporate Leverage and Financial Decision in the Indian Textile Industry.docVIP

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Corporate Leverage and Financial Decision in the Indian Textile Industry.doc

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Corporate Leverage and Financial Decision in the Indian Textile Industry

CorporateLeverageandFinancialDecision intheIndianTextileIndustry RamachandranAzhagaiah SelvarajSathia Inthepresenceofmarketimperfections,leveragehasthepotentialto haveanimportantin?uenceoninvestmentdecisions.Ifa?rmmakes moneyonitsborrowing(hasfavorable?nancialleverage),theshare- holdersrealizehigherearningspershare(eps)thanwouldbethecase intheabsenceofdebt,asthedebt-equityratio(der)isalongterm riskmeasure.Inthepresentstudy25textile?rms,whicharelistedin Bombay StockExchange are takenas a sample for the study period from2004to2008.Thestudyrevealsthatthe?rmsi.e.acm,afl,asl, basml,bcil,gsm,gdpm andgjml showsigni?cantgrowthratein ?nancial,operatingandcombinedleverage. KeyWords:capitalstructure,?nancialleverage,operatingleverage, corporateleverage,?nancialdecision,debtequityratio jelClassi?cation:g30,g32,g35 Introduction FinancialDecision (fd) plays a crucial role in the survival of a ?rm. Business decisions of the ?rms in general and strategies in particular aremoldedbythebusinessenvironment.Everybusinessmanhastoface toughcompetitions,uncertaintyandriskprevailinginthetrade.Exter- nalfactorsliketheeconomic,political/regulatory,social,demographic, technologicalandnaturalfactorswhichmakeuptheopportunitiesfor andthreatstobusiness,andinternalfactorsliketheresources,capabili- tiesandgoodwilloftheorganization,internalpowerrelationshipsetc., whichdecidethestrengthandweaknessofthe?rm.The?rm’scapital structure(cs),whichisthemixofdebtandequityisconsideredtobe optimumwhenthemarketvalueoftheshareismaximized.Whenthe shareholders’returnismaximizedwithminimumriskthemarketvalue DrRamachandranAzhagaiahisanAssociateProfessorintheKanchi MamunivarCentreforPostGraduateStudies,PondicherryCentral University,India. SelvarajSathiaisaResearchScholarintheKanchiMamunivarCentre forPostGraduateStudies,PondicherryCentralUniversity,India. ManagingGlobalTransitions10(1):87–114 88 RamachandranAzhagaiahandSelvarajSathia persharewillbemaximizedandthe?rm’scswouldbeconsideredopti- mum.Oncethe?nancia